AT&T To Buy BellSouth

Update: AT&T, BellSouth confirm the merger. “This merger is a logical next step that creates substantial value for customers and stockholders of both AT&T and BellSouth,” said AT&T Chairman and CEO Edward E. Whitacre Jr in a statement. “It will benefit customers through new services and expanded service capabilities. It will strengthen Cingular through unified ownership and a single brand.” In other words, Cingular will soon be back as “AT&T Wireless.”

Mr. Whitacre will serve as chairman, CEO and a member of the board of directors of the combined company. Mr. Ackerman will serve as chairman and CEO of BellSouth operations for a transition period following the merger. Additionally, three members of BellSouth’s board of directors will join the AT&T board. The corporate headquarters for the combined company will remain in San Antonio. Cingular’s headquarters will remain in Atlanta, as will the combined company’s Southeast regional telephone company headquarters.

The merger will likely get a lot of opposition from the consumer groups. Gigi B. Sohn, president of Public Knowledge, in a statement today noted that, we need to make sure that Net Neutrality is part of the approval process. “Both AT&T and BellSouth have been forthright in their statements about their desire to exert greater control over the Internet. It is up to those who make public policy to make certain that the principles of an open Internet continue through this greater consolidation of the telecommunications industry. It is vitally important that the Internet remains open and accessible to consumers and to service providers and remains the source of innovation it has been over the past two decades.”

* * *

Ben Silverman, a telecom analyst with independent investment newsletter says that, “The deal will raise fears that Verizon is left with no option but to acquire Qwest, causing further regulatory issues. Qwest will need to find a suitor, which could include Verizon or Sprint’s new local unit, Embarq. Valor Communications, which acquired Alltel’s landline business, could also be a suitor. An AT&T-BellSouth deal would put pressure on Verizon to acquire the 45% stake of Verizon Wireless that Vodafone owns. Vodafone has already said that it is in talks to sell its Japan unit, meaning that the company now has even more leverage over Verizon to extract a serious premium for its stake in Verizon Wireless. ”

Meanwhile Kirsten Osolind thinks King Ed rules.

* * *

Holy smokes…. King Ed (Whitacre) is really going to be the king of telecom. The Wall Street Journal is reporting that AT&T is in talks to buy BellSouth for about $65 billion. The news should not surprise anyone, since it was a foregone conclusion that BellSouth would eventually end-up with SBC/AT&T. The prime driver behind this deal has to be Cingular, the wireless joint venture between the two companies which has become an awesome money machine.

Put together, the SBC territory would extend from California to Florida, north to Illinois and south to Texas. Combining the two companies’ current market capitalizations, AT&T would have a market value approaching $150 billion, over 50% greater than Verizon.

This basically makes it Verizon versus AT&T in the US telecom space. So its pretty much back to the future. I think this could prompt another round of mergers. Qwest and Sprint Local could make good partners. Of course, Verizon could make some moves of its own, and snap-up someone like Alltel.

The wave of mergers has dramatically reshaped the telecom industry, and a purchase of BellSouth would further cement the recreation of the old Ma Bell, which the government pushed to break up in 1984. The management of AT&T, which has apparently briefed key senior government officials late last week, appears to be betting that the Bush administration and a Bell-friendly Federal Communications Commission won’t raise too many obstacles for such a deal.

Bell-Friendly is a euphemism for ‘FCC does whatever bells ask them to do.’ The long term implications of this deal, and its impact on the whole network neutrality debate is going to be huge. I wonder how it will impact the broadband prices. I have not had a chance to fully digest this information, but will update the post, in the morning.